After war, the Yugo, and 60 years, Serbia's Zastava shuts down

Hemmings archive photo.

One would presume that a company that not only built the Yugo but also withstood international sanctions and a NATO bombing campaign and nevertheless continued to build cars could continue on, cockroach-like, forever. Yet Zastava in Kragujevac, Serbia, last month officially closed for good, brought down by a simple bankruptcy.

Dating back to the 1850s and the establishment of a cannon foundry in Kragujevic, the Zastava factory produced everything from arms to agricultural equipment to Chevrolet and Willys trucks until 1954, when plant workers voted to begin full-scale automobile production and set up Zavodi Crveni Zastava (Red Flag Works), under which they began assembling licensed Fiats for the Yugoslavian market.

Production ramped up quickly - up to about 82,000 cars a year in the early 1960s. Other Balkan countries took to the cars quickly, and the U.S.S.R. began importing Zastavas in the mid-1960s. Fiat designs comprised pretty much the entire Zastava lineup, from the 600 up to the 1400 and 1900 and even the Campagnola, though Zastava did eventually begin producing its own unique versions, such as the 128-based 101 and the vehicle Zastava became best known for, the 127-based Yugo.

Designed in Italy for Zastava, the Yugo (also known as the Koral and sold by Fiat as the 144) debuted in 1983 with a sub-1.0L carbureted overhead-camshaft four-cylinder engine, though larger versions of the engine - up to 1.3 liters and fuel injected - later followed. Zastava sold the Yugo across Europe and Great Britain and by 1986, thanks to entrepreneurs Miloslav Kefurt and Malcolm Bricklin, the Yugo found a market in the United States, initially selling for less than $4,000 due in part to its basic standard equipment list.

Nearly 50,000 Yugos were sold in the United States in 1987 and Zastava was building about four times as many total at about that time. A convertible and a sport model followed, but sales slowed to a trickle in the United States by 1990, and production nosedived in 1991 after the outbreak of civil war in Yugoslavia. Trade sanctions that lasted most of the Nineties kept Zastava from exporting its cars and a NATO bombing campaign during the Kosovo War in 1999 destroyed part of the Kragujevac factory compound, which still produced arms.

Yet Zastava rebuilt, restarted production in the early 2000s, resumed exporting once the trade sanctions were lifted, and even retooled the Yugo for the 21st Century. Though it still built Fiat vehicles under license, Zastava remained independent of Fiat until 2008, when the Italian carmaker set up a joint venture with the Serbian government to purchase Zastava's assets and to produce Fiats in Kragujevac.

Photo via FCA.

That venture, FCA Serbia, continues today in the old factory, now remodeled and modernized. However, the remains of Zastava, saddled with 60 billion Serbian dinars (more than $530 million) worth of debt and disability payments to former workers, entered bankruptcy and insolvency hearings in July. That led to a virtual padlocking of the doors to the company, which still employs three people, and nationwide reflections on Serbia's automotive heritage.

"People today can not imagine how much effort workers put into building this factory," former Zastava employee Bataveljić Slavoljub told Czech site E15. "When the factory opened, no one was trained in the work that we did, so we all learned on the fly. While we built a factory to build cars, the factory in turn built us."

Serbian government officials have said they anticipate settling the Zastava bankruptcy by the end of the year.